Entity Setup

Building an Entity While Gaming Global Minimum Tax – Pillar Two Insights for Australian Companies

From 2024 onwards Australia enforces the OECD’s global minimum tax rules. Here’s how in‐scope companies can structure entities to minimise compliance risks and avoid unexpected liabilities under Pillar Two.

By NomadicTax Research Team • 5-8 min read • November 21, 2025

## Pillar Two in a Nutshell for Australia Australia has now implemented both the **Global Anti-Base Erosion Model Rules (GloBE)** and the **Domestic Minimum Tax (DMT)**, effective from **1 January 2024** for the Income Inclusion Rule and Domestic Minimum Tax, and the Undertaxed Profits Rule is effective from **1 January 2025**. ([ato.gov.au](https://www.ato.gov.au/about-ato/consultation/in-detail/stakeholder-relationship-groups-key-messages/energy-and-resources-working-group/energy-and-resources-working-group-key-messages-20-november-2024?utm_source=openai)) ## Who Must Comply? In-scope are **Multinational Enterprises (MNEs)** with consolidated group revenue **exceeding EUR 750 million**, including foreign-headed and Australian-headed groups. Around **6,000 groups** estimate to be affected. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) ## Key Requirements & Deadlines - **Lodgment of global GIR (GloBE Information Return)** via API or similar channels. Domestic forms include Australian IIR/UTPR and DMT forms. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/Pillar2_20250305?utm_source=openai)) - **First lodgments due by 30 June 2026** for financial years ending in late-calendar or early-mid calendar years. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) - **Top-up taxes paid** when global minimum rates are not met; domestic returns first revealed income inclusion or top-ups. ## Structural Implications for Traffic & Entity Setup - **Restructuring entities** to avoid unexpected top-ups, e.g., consolidating smaller entities or altering revenue mix. - **Foreign subsidiaries with intellectual property (IP)** or royalty channels must carefully assess royalty withholding and correct pricing. Mischaracterisation is an ATO risk. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) - **Data centre operations**: owning tangible assets or IP in Australia may increase exposure. Activities split artificially may trigger GAAR or permanent establishment risks. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) ## Actionable Steps for Companies - **Perform a scoping review**: Determine in-scope status, prepare data gathering, revenue and entity analysis. - **Build systems early**: Ensure accounting, reporting systems can track required GIR data. Engage digital service providers. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/Pillar2_20250305?utm_source=openai)) - **Plan for penalties & relief**: Transitional relief is possible if reasonable steps are taken to comply during early years. Penalties may not be enforced immediately. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) - **Consider entity structure and IP location**: Avoid structures primarily designed for shifting profits; also ensure royalty and intangible use is priced correctly. ## Example Scenario A foreign-headed MNE owns IP domiciled offshore and licenses to its Australian subsidiary, which also operates a data centre. Without correct royalty agreements and withholding, the Australian subsidiary may face royalty withholding tax and surprise Pillar Two top-ups if the income is ‘undertaxed’. Reviewing and adjusting those contracts and ensuring they’re tested against ATO’s transfer pricing and compliance approach can significantly reduce risk. ## Key Takeaways - Pillar Two is **already law** in Australia with phased effective dates. - Entities must assess their obligations, reporting, and whether they meet the minimum global effective tax rate. - Good structuring, documentation, and early compliance are essential. - Use transitional relief and consult with tax advisors or specialists to ensure entity setup isn’t vulnerable to rulings, audits, or penalty exposure. While the new global minimum tax rules add complexity, companies that plan now can stay compliant—and avoid costly surprises in future years.